As long as they made money, few investors bothered to consider that Meeker, Blodget, Grubman, and the other superstar analysts were no longer objective observers of the market: they were insiders with inherent conflicts of interest

In The Final Analysis

Internet-stock mania made powerful stars out of Wall Street research analysts such as Mary Meeker, Henry Blodget, and Jack Grubman. Then the techno-bubble burst, and investors who'd followed their advice lost serious money. Now celebrity analysts are facing death threats, investigations, and lawsuits.

In retrospect, the tip-off that the reputations of Wall Street research analysts had become as inflated as the stocks they followed was the April 26 & May 3, 1999, "Money Issue" of The New Yorker. Along with a nostalgic essay on pocket change by John Updike and a poem by Richard Wilbur ("The Gambler"), the magazine featured an 11-page profile of a research analyst with Morgan Stanley Dean Witter named Mary Meeker. The article described Meeker, a 39-year-old midwesterner, as plainspoken and unpretentious: she liked to Rollerblade and she hoped one day to marry and have children. It also presented her as one of the most important players in the Internet-stock bubble, aggressively courted by executives, venture capitalists, journalists, and investors. "The forces driving the Internet stock phenomenon remain somewhat mysterious," the writer concluded, less than a year before the bubble burst, "but Mary Meeker has undoubtedly played a crucial role."

Meeker was by no means an unknown. In 1998 she had been featured on the cover of Barron's as "Queen of the 'Net" because of her influence on the stocks of such companies as America Online, Yahoo, and Amazon.com. Being in The New Yorker was different, though; it established that research analysts had become celebrities of a sort, known not only on Wall Street but also among people interested in John Updike's musings on pennies and nickels.

Jack Grubman, a 47-year-old telecommunications analyst with Salomon Smith Barney, was widely heralded as a "guru" whose predictions, dutifully reported by the media, instantly affected stock prices. ("He's almost a demigod," one worshipful C.E.O. told Business Week in May 2000.) Dan Niles, 33, a technology analyst, then with the investment bank Robertson Stephens, was compared by a newspaper reporter to Michael Jordan. Merrill Lynch's entertainment analyst, Jessica Reif Cohen, 45, was "The Queen of All Media," according to Fortune: "Reif Cohen's words can instantly add or subtract-billions in market value."

Before the 1990s, research analysts were neither queens nor demigods, nor even stars. Instead of being featured in the media, they quietly advised clients on the long-term prospects of public companies. However, with the emergence of the bull market of the 1990s, and especially the mania for technology stocks, that all changed. As record numbers of Americans began investing in the market, what counted was not a company's balance sheet but the short-term performance of its stock. Who had time to be patient?

Financial-news outlets—particularly CNBC, the cable network watched obsessively by traders—needed provocative sound bites; analysts whose views could send a stock soaring quickly became media stars. SG Cowen's Thomas Bock made a name for himself in April 2000 by predicting that QXL.com's stock, then trading at $112 (adjusted for splits), would hit $1,665, a prophecy that more than doubled the price of the on-line auction house in a single day. Henry Blodget, then with the second-tier firm CIBC Oppenheimer, became a star in 1998 by announcing that Amazon.com, which was trading at $243, could hit an astonishing $400 within a year. Before that, no one had heard of Blodget. He was 32 years old, a history major from Yale who'd taught English for a year in Japan and worked as a proofreader at Harper's before landing on Wall Street in 1994. But his audacious Amazon prediction created a sensation: within three weeks the stock had indeed hit $400-up 65 percent from the day Blodget made his call. "It was like touching a match to a bucket of gasoline," he later told a reporter.

That was then. Now (as of mid-June) QXL.com trades at $2; it never came anywhere near Bock's target price. Amazon.com is down 84 percent since early 2000. Quokka Sports, an on-line sports-information network whose stock Blodget once predicted would hit a split-adjusted $1,250, is in Chapter 11 bankruptcy.

Mary Meeker has done just as badly. In March 1999, her employer, Morgan Stanley, underwrote the I.P.O. of Priceline.com, which sells discounted airline tickets and hotel rooms over the Internet. Despite the company's enormous losses, its I.P.O. was strongly promoted by Meeker. "This is a time to be rationally reckless," she explained to The New Yorker. Rational? Not exactly, but reckless she was. Since the New Yorker article appeared, Priceline.com's stock price has dropped 96 percent. Yahoo, the Internet portal, was another stock favored by Meeker and underwritten by Morgan Stanley; it is down 92 percent since reaching its peak in January 2000. As for Jack Grubman, the "demigod," in November 1999 he advised investors to buy AT&T, then $57 a share, predicting the stock would soon reach $75. One year later, he changed his mind. Too late: AT&T was at $29.

So what's the bottom line, as they say in the trade? Investors lost huge sums of money by following the advice of so-called celebrity analysts; the analysts, meanwhile, got famous and rich. "They get paid a ton of money," notes a New York hedge-fund manager. "But they don't take any risk."

Other than the risk of losing their reputation. Nowadays it's hard to find anyone willing to say anything kind about analysts. "You should talk about what assholes they are," one money manager advised me. "They walked all over people for two years. They believed their own bullshit." Written with a rearview mirror, a May 2001 Fortune cover story, "Where Mary Meeker Went Wrong," names the analyst "the single most powerful symbol of how Wall Street can lead investors astray." Michael Wolff, the media columnist for New York magazine, recently observed that "Mary Meeker seems almost demented."

Small and naive investors are outraged. "I think these analysts are just used-car salesmen in a new field," reads one typical posting on an Internet message board. At least two prominent analysts, Dan Niles of Lehman Brothers and Jonathan Joseph of Salomon, have received death threats, presumably from investors. Henry Blodget, now "the clown prince of 'Net analysts," according to a recent article in the New York Post, is being sued for fraud. In Washington, Representative Richard Baker, chairman of the House Subcommittee on Capital Markets, has launched a congressional investigation of analysts; specifically, he wants to know if some manipulated the market for their own gain. New York State's attorney general is studying conflicts of interest among analysts. And the Securities and Exchange Commission is looking into possible unethical conduct by analysts who may have received pre-I.P.O. shares in companies they covered.

Which leads us to the heart of the matter: many of the picks and predictions of analysts weren't just dead wrong-they were compromised. As long as they made money, few investors bothered to consider that Meeker, Blodget, Grubman, and the other superstar analysts were no longer objective observers of the market: they were insiders with inherent conflicts of interest, making money for themselves and their firms by promoting their banks' clients, bringing in deals, pushing big I.P.O.'s, and even owning shares in the companies they covered and recommended. The official position of investment banks is that a "Chinese wall" separates their research and banking departments. Unofficially, everyone knows the wall crumbled long ago. Meeker, for one, had earned big fees for helping to take Yahoo and Priceline.com public. It was in her and other analysts' interest to drive stock prices up. Which is to say that analysts and stock promoters may have become one and the sameshills, either directly or indirectly.

"Wall Street tends to have fairly flexible mores," notes a New York hedge-fund manager. "But a lot of people from the outside, seeing what some analysts did, would say it's deeply wrong, it's borderline criminal. No one expects bankers to be anything but myopic and greedy, but analysts have a duty, and they failed, failed miserably."

Not that this was a secret. Only the most credulous could not have been aware that Meeker and other analysts were serving interests different from the investors' own. But in a market where seemingly everyone was making gobs of money, who cared?

As professionals on Wall Street know, analysts rarely issue "sell" recommendations. Why? Because the company concerned could get petulant. Which, in turn, could have repercussions: (a) the company could cut off the analyst's access to information; (b) the company could refuse to do its investment banking with the analyst's employer; (c) the analyst could get fired for undermining one of his firm's important clients. "The safe route is to shut up, take the press release on quarterly earnings, get guidance from the C.F.O., and put it out in a report," says a Connecticut money manager. "The best thing to do is just keep a 'buy' rating on the stock."

This is not news. Back in 1990, Marvin Roffman, an analyst with Janney Montgomery Scott, said that Donald Trump's new Taj Mahal casino in Atlantic City wouldn't make enough money to cover the interest payments on its junk bonds. Trump, being Trump, threatened a "major" lawsuit. Roffman sent Trump a letter of apology, but he retracted it the following day. Then he was fired. "They're lucky," Trump told a reporter a few months later, referring to Janney Montgomery. "They got rid of a bad analyst, a man with little talent."

As Roffman predicted, Trump's Taj Mahal casino defaulted on its junk-bond payments in 1991. In an arbitration case, Roffman was awarded $750,000 from Janney Montgomery; his defamation suit against Trump was settled for an undisclosed amount.

It's not an isolated story, the firing or intimidation of an analyst for issuing a negative recommendation. More recently, an internal J. P. Morgan memo, which was leaked to the press this past March, reminded the firm's analysts that any changes in stock recommendations must first be vetted by the company in question as well as by Morgan's own investment-banking department. So much for analysts' supposed independence. Perhaps this is why, out of the tens of thousands of analysts' recommendations floating around at any one time, somewhere between 0.3 and 0.8 percent are "sells," depending on who's doing the counting. At some banks, the word "sell" is not even part of their vocabulary. Instead, polite euphemisms such as "neutral" and "hold" are preferred. This is one reason why Lehman Brothers bond analyst Ravi Suria attracted so much attention in June 2000 when he bluntly warned that Amazon.com was running out of cash and might never be profitable.

When an analyst thinks a stock is in trouble, he rarely puts his thoughts in his reports, which are typically E-mailed to investors. Instead, he personally telephones his top clients-big institutions such as mutual funds, pension funds, and hedge funds-to pass on his concerns. Small investors are shut out of the inner circle. "What analysts tell me is completely different than what they're writing," explains one money manager. As an example, he recounts a recent conversation with an analyst at a prominent firm about a stock that the analyst had recommended in a report. "I said, 'I'm looking at it as a short,'" the hedge-fund manager recalled, meaning that he believed the stock was likely to tank. "He said, 'Yeah, it could be a short.' And I said, 'But you've got a "buy" on it!'" As another money manager put it, "The corruption is so unavoidable, the analysts are almost blasé about it. It's like, 'Look, you know I'm corrupt, I know I'm corrupt, so let's cut the crap.'"

Here's another open secret about Wall Street analysts: they're bad stock pickers. Big institutional investors know that, which is why Fidelity Investments, with about $800 billion invested in its mutual funds, and California Public Employees' Retirement System, the huge pension fund better known as CalPERS, have teams of in-house analysts whose job is not to promote themselves by making media appearances, or to attract underwriting deals. Their sole job is to analyze public companies, dispassionately.

Once upon a time, that is what all analysts did. They were the academics of Wall Street: poorly paid, unglamorous, respectable if not always respected. "To be an analyst in research-only retards and losers went there. You know, guys from tier-two schools," remarks someone who joined Salomon's mergers-and-acquisitions department in 1992 and now runs a hedge fund. Most analysts were then earning salaries in the neighborhood of $150,000 to $200,000, a fraction of the money made by investment bankers with comparable experience; a top analyst at a top firm could pull in $1 million, but no more. Using dry, precise language and complex math, they wrote detailed reports analyzing the prospects of public companies. Their reports were then sent out—by mail, with stamps—to pension-fund managers and other clients. Now and again, analysts were quoted in the business press, but in the same colorless way that mid-level bureaucrats might appear in an article about State Department policy.

Because commissions on stock trades were high, and fixed, money was generated by high-quality research that attracted clients to an analyst's brokerage firm. But this all began to change in 1975, when the securities business was deregulated: the result, over the next 20 years, was that commissions on stock trading dropped 80 percent and research reports no longer paid for themselves. Today the big fees are made from investment-banking services-mergers, acquisitions, and initial public offerings, for example. Thus, for an analyst to justify his paycheck, he has to sell himself and his firm, persuading the companies he supposedly covers dispassionately to do business with his firm. In a sense, analysts have become marketing tools-the Betty Crockers, Uncle Bens, and Tony the Tigers of Wall Street. Depending on their range of influence, the top analysts now easily command $5 million a year, and, in the case of Grubman or Meeker, as much as $25 million.

Those are investment-banker salaries, and that's what analysts have essentially become.

Stock picking is one of the least important things that an analyst does. At the end of the day, our clients make their own decisions. We just provide them with information," Holly Becker, Lehman Brothers' 34-year-old senior Internet analyst, told me. It's a telling remark, seeing as Becker is best known for her stock picks; she's famous for turning negative on Yahoo and Amazon last summer-months after those stocks had started their fall, but ahead of most of her colleagues. What's more, in early April, just two weeks before I spoke to her, Becker was in the news again for her call on Yahoo, but this time it was a "buy" recommendation that sent the stock soaring 23 percent in a single day. (LEHMAN'S BECKER UPGRADES YAHOO! INC., screamed a headline in The Wall Street Journal. BUT BIGGEST BOOST MAY BE TO HER CLOUT.) With her three-year, guaranteed-$5-million-a-year contract with Lehman, what does Becker consider to be an analyst's most important qualities? Lots of energy, the ability to work well with people, and good juggling skills are three she mentions.

I see just what she means during my visit to Merrill Lynch's star media-and-entertainment analyst, Jessica Reif Cohen. It's eight o'clock in the morning. Reif Cohen, who's been at the game for 18 of her 45 years, is desperately hurrying to downgrade a company's stock before the market opens, and, since the company has already announced a disastrous first quarter, she's annoyed she didn't downgrade sooner. Yelling into the phone ("We're downgrading.... We've got to get this done A.S.A.P.") and goading a junior analyst ("You need to get this paperwork in now; they're changing the rating now"), she's also checking E-mails on her Blackberry pager and answering calls from important clients ("My guess is the stock gets cratered today"). She barely notices my presence ("I'm sorry, who are you?").

Stacks of books, binders, and spiral-bound documents block the three windows in her office. She looks surprisingly composed for someone who got up at 4:30 A.M., went to the gym, made her four-and-a-half-year-old daughter breakfast, read the Journal front to back, and arrived at work by 7 A.M. Her brown hair is perfectly styled, her makeup is well in place, her nails are lacquered pale pink. As if it were still the 80s, she's wearing an expensive black suit with soft ruffles at the lapel, a gold Cartier Panthère watch with matching Cartier bracelets, a heavy gold choker, and, on each hand, an emerald-and-diamond ring.

Asked about the current demonizing of research analysts, Reif Cohen puts down the phone for the briefest moment: "It's almost like a stock. Things tend to swing a little too much one way, and then they swing back. No analyst has ever been 100 percent right." Reif Cohen has been lucky: she hasn't been called out on any obvious conflicts of interest (it helps that she's not an Internet analyst but covers less volatile companies like Viacom and Disney). But even she concedes that a tension is always there. "A lot of analysts write one thing and say another because they're afraid of the company. Realistically, you should be consistent, but it's difficult to do."

Suddenly, she remembers a 9:15 meeting she'd scheduled in Midtown. She calls out to her assistant: "Helen! Helen!" There's no reply. Reif Cohen returns to the topic. "You could be a perfect stock picker and not do well in this business. You need to handle institutional buyers, salespeople, bankers. An analyst's goal should be to ring as many cash registers as possible-and to have integrity." Talking to me does not ring cash registers. Helen! Helen! "We need the car now!"

Just a few months ago, in April and May, some of the angriest postings on Internet message boards were directed at Jack Grubman, the powerful telecommunications analyst with Salomon Smith Barney. For the past four years, Grubman, 47, has been ranked the No. 1 analyst in his sector by the trade publication Institutional Investor. He earns a reported $25 million a year. Nevertheless, Grubman is now under attack. "Grubman is a f#*%ing crook," reads a message on Yahoo Finance, complaining about his "buy" recommendation maintained on a company that recently went bankrupt.

Grubman grew up in a blue-collar neighborhood in northeast Philadelphia. Ambitious and smart, he won a national math award in high school and went on to earn his undergraduate degree in math at Boston University. Wanting to be a professor, Grubman went to graduate school at Columbia University; after getting his master's degree in 1977, he joined AT&T, where he built economic models forecasting the impact of deregulation and the demand for long-distance service.

In 1985, Grubman was hired as a research analyst at PaineWebber; nine years later, in 1994, he joined Salomon. Admired then for his straight talk, he seemed to be independent, incorruptible. One of his best-known stock calls was on his former employer: in 1995 he turned on AT&T, downgrading his recommendation on its stock from a "buy" to a "neutral"-Wall Street code for "sell." It was a good call: AT&T's stock performed poorly.

During the next few years, AT&T executives kept meeting with Grubman, hoping to change his mind, but he held his ground. Thus, when he changed tack in late 1999, it raised suspicion on Wall Street. Here's the story: Having announced that it was spinning off its giant wireless division, AT&T was busy shopping for investment banks to take the spin-off public. That I.P.O. would be the biggest in history, selling $10 billion worth of shares to the public, and generating an astonishing $300 million in fees for the underwriters. In November 1999, Grubman changed his rating on AT&T from "neutral" to "buy." A few months later, in February 2000, Salomon Smith Barney was chosen-along with Goldman Sachs and Merrill Lynch-to be a lead underwriter of the spin-off, AT&T Wireless.

If Grubman's "buy" rating seemed fishy to some people, it wasn't the end of the affair by any means. Within a year, between November 1999 and November 2000, the price of AT&T's stock had dropped by half. As for AT&T Wireless, on going public in April 2000, a record percentage of its shares were bought by small investors, among them 57,000 loyal and trusting AT&T employees. From an I.P.O. price of $29.50, AT&T Wireless climbed to $36 two days later, whereupon it started on a downward spiral. As this story goes to press, the stock is at $16, representing a huge (paper) loss for shareholdersincluding loyal and trusting AT&T employees.

AT&T is only one of Grubman's failed prophecies; a company called Winstar Communications is another. Winstar offers local phone and Internet service to businesses, but what it does isn't really important. What matters is this: until the beginning of 2001 it was one of Wall Street's hottest companies, with backers that included Microsoft, Credit Suisse First Boston, Lucent—and Jack Grubman. Right up to the time Winstar filed for Chapter 11 bankruptcy protection on April 18, 2001, Grubman was one of the company's ardent promoters; Salomon last year helped Winstar sell $1.2 billion worth of junk bonds.

The company had been in trouble for a while, with investors worried that it was running out of money. From a high of $66.50 in April 2000, the stock had fallen to $20 by late January 2001. Short-sellers were certain the company was going farther south. But on March 9, with the stock now at $9.94, Grubman was still enthusiastic. He blamed rumors of the company's impending demise on short-sellers and insisted the stock was worth $50. "We continue to believe that WCII remains well funded into 2002," he wrote in an early-morning research note, referring to Winstar by its stock symbol. "WCII continues to remain one of our favorite names in its space and [we] would be buyers at these levels-nearly their 52-week low."

Five days later, with Winstar at $7.69, another analyst, Mark Kastan of Credit Suisse First Boston, reiterated his "strong buy" rating on Winstar, prophesying that the stock would reach $79. His report goes: "On Tuesday March 13, we attended a well-attended, upbeat investor meeting with the WCII senior management team.... The WCII management effectively laid to rest many of the recent concerns that we have been hearing from investors." No surprise there: the private-equity division of Kastan's firm had invested $511 million in Winstar; the company had also partnered with Salomon on Winstar's junk-bond issue.

To be fair, some analysts at other big banks with no dogs in this particular hunt were equally optimistic. But six weeks after Kastan's cheerful report, Winstar filed for bankruptcy protection. Delisted from the NASDAQ exchange on April 26, Winstar now sells for pennies a share on what are known as "pink sheets"-a market for highly speculative junk stocks. Since April 2000, $6 billion in shareholder value has been lost in Winstar.

"I guess the only way to view Grubman is that he makes his price predictions based on INCOME," reads a posting on an Internet message board from someone who followed the analyst's advice on Winstar. "HIS and not yours!"

Few analysts have done a better job at self-promotion than Henry Blodget. In early 1999, shortly after his career-making call on Amazon.com, he was offered somewhere in the range of $4 million to become Merrill Lynch's top Internet analyst. Like Mary Meeker and Jack Grubman, he was expected to do more than write research reports; he had a duty to persuade Internet companies to steer their I.P.O.'s straight to Merrill Lynch.

Hundreds of I.P.O.'s were looking for underwriters, and underwriters were looking for I.P.O.'s. As stocks of Internet companies took off, few candidates were rejected outright. One of Blodget's errors in judgment was promoting the I.P.O. of Pets.com, the on-line pet-supply store. With Blodget's employer, Merrill Lynch, leading the I.P.O., Pets.com went public in February 2000, a month before the stock market peaked, selling shares worth $82 million, and earning Merrill close to $5 million in fees. Blodget, as is customary for an analyst leading an I.P.O., initiated his coverage of Pets.com with a "buy" recommendation. Then, over the following six months, with the market crumbling, and despite Pets.com's mounting losses, he issued three more positive research reports on the company, each time reiterating his "buy" recommendation and insisting the stock would soon surge.

By August 2000, the Dow Jones Composite Internet Index was down 44 percent from its peak in March. That month, Blodget finally gave up: in a single day he downgraded 11 of the 29 stocks he was tracking, including Pets.com. By that point, everyone knew that Internet stocks were dead anyway. ("Now he tells us," began an article in The Wall Street Journal about Blodget's change of heart.) Pets.com, which had gone public at $11, was down to $1.44; three months later the company was out of business. Blodget's other downgrades were equally after the fact: eToys had dropped 95 percent from its 52-week high when he downgraded it (it too is now out of business); Barnes & Noble.com was down 84 percent. Investors who had followed Blodget's advice to "buy" this or that dead horse may have been wiped out, but Merrill Lynch filled its coffers. Between 1997 and 2000 it earned fees of $100 million on Internet I.P.O.'s, including those of eToys and Barnes & Noble.com.

Before the bull market of the 1990s, most small investors left their money in the hands of professionals; they invested in mutual funds and focused on long-term results. But as stocks climbed, more and more Americans became convinced they were smarter than money managers. Investing was easy! They opened on-line trading accounts, watched CNBC, swapped stock tips in Internet chat rooms, invested in I.P.O.'s, and, aspiring to be day traders, slid in and out of stocks. They also trusted research analysts.

Which brings us, in this morality play, to one of Blodget's "victims": a pediatrician from Jackson Heights, Queens, named Debasis Kanjilal. Having set up a brokerage account at Merrill Lynch, Kanjilal started buying stocks in 1996, investing $250,000 in such companies as General Electric, IBM, Citibank, Microsoft, Chase, and AOL. He did very well at first. By the beginning of 2000, with all his money then invested in just two stocks, Microsoft and AOL, his Merrill Lynch account was worth $1.2 million. Kanjilal felt it was time to diversify. By his account, Michael Healy, Kanjilal's broker at Merrill, suggested he buy two stocks: InfoSpace (which supplies Web sites with news, stock quotes, search engines, and so on) and JDS Uniphase (a manufacturer of fiber-optic components).

So Kanjilal sold his positions in AOL and Microsoft, investing $571,200 in InfoSpace and $481,343 in JDS. At the time, Blodget rated InfoSpace a "buy"; the company was included on Merrill's "Favored 15" list of most-recommended stocks. As for JDS, it too was a "buy"; Merrill telecom analyst Tom Astle predicted that the stock, then trading in the mid-$100s, would go to $200. You know what happened next.

As the market plummeted, Kanjilal became rattled, calling his broker nearly every day, sometimes twice a day. What particularly distressed him, he told me, was that the C.E.O.'s of both InfoSpace and JDS were dumping millions of dollars' worth of shares in their own companies, even as he was being advised to buy them. Not that Merrill Lynch told him about the selling by insiders (which, as long as it's reported to the S.E.C., is legal, but viewed as a bad sign by the market); Kanjilal found out about it by doing research on-line. Nor did Merrill tell him that it was working as an adviser to a company InfoSpace was acquiring. When he intended to sell his shares in the company, Kanjilal reports, his broker talked him out of the idea, reassuring him that Merrill's analysts remained bullish. One time Kanjilal demanded to speak with Blodget. "No," his broker replied, according to the legal documents filed for Kanjilal's pending arbitration case against Merrill Lynch and Blodget. "He is a big shot. He is like a general in the army."

Kanjilal, who moved here from Calcutta in 1981, lives inconspicuously, frugally. He, his wife, Debjani, and their two teenage children rent a four-room apartment for $1,400 a month. They own a car-a Nissan Maxima bought three months ago to replace a Toyota Corolla they drove for 14 years. Once a year they go on vacation. But mostly the 47-year-old Kanjilal works. In the evenings, after returning home from Elmhurst Hospital Center, a public hospital in Queens, Kanjilal writes study guides for physicians preparing for medical-board exams. Mornings are devoted to his stock portfolio.

Last year, as he was losing thousands of dollars every day on InfoSpace and JDS, Kanjilal would rise at 4:30 A.M. to research stocks on the Internet. Throughout the summer, as those stocks continued hitting new lows, he began phoning his broker at seven A.M. "I was very concerned," Kanjilal recently told me. "I called my broker. He told me, 'Nothing to worry!' I would get weekly research reports from Merrill Lynch by mail-the target price on InfoSpace was $100. But it was falling and falling. I kept calling my broker: 'What is going on?' He said, 'It'll bounce back up.' So I waited and watched. When it came down to $50, still Blodget's target was $100.... They're telling me, 'Sit tight, nothing to worry.' So I said, Merrill Lynch is the best; they know what is right."

On December 11, Blodget finally downgraded InfoSpace. By then, the stock was at $11, having dropped 92 percent since Kanjilal, on Blodget's recommendation, had bought it. JDS had fallen by 57 percent. In less than a year, Kanjilal's $1.2 million portfolio had shrunk to $95,000. "Mr. Kanjilal was an experienced investor who made his own investment decisions," insists a Merrill Lynch spokesman. (Had he held on to his AOL and Microsoft shares, his portfolio would now be worth about $500,000.)

At the time, Kanjilal confronted his broker: "How can [Blodget] be one of the best Internet analysts when his recommended stocks went down the tubes?" According to legal documents, the broker replied matter-of-factly, "Doctors kill their patients too."

On Wall Street, scandals come and scandals go, and nothing ever happens, much. When Kanjilal's arbitration case against Henry Blodget and Merrill Lynch goes to trial early next year, its outcome may or may not alter the way analysts report on public companies. And in Washington, congressional hearings may lead to regulations that would require analysts to disclose their conflicts of interest. Last month, a trade group, the Securities Industry Association, issued toothless guidelines meant to bolster analysts' integrity-guidelines the big investment banks claim they already follow. Perhaps the S.E.C., which is threatening to look at the absence of integrity in research departments, will stir things up. But this much is certain: the era of celebrity analysts is over.

Jack Grubman, who declined to be interviewed for this article, has quietly lowered his public profile. Blodget, now advised not to speak to the press because of his legal trouble with Dr. Kanjilal, told The Wall Street Journal earlier this year that he's endured so much abuse he feels like a "piñata." Just last month, he suffered another whack for turning negative on a company called GoTo.com only hours after his firm, Merrill Lynch, was shut out of a GoTo.com underwriting deal. (A pure coincidence, claimed Merrill.) Back in October 1999, at the peak of Internet mania, he announced he was writing a book for Random House, which, according to his editor, would explain why "all of this market madness actually makes sense." Now, perhaps unable to make sense of the madness after all, Blodget's book has been delayed.

As for Mary Meeker, despite the hopes expressed in her New Yorker profile, she is not yet married with children. But in contrast to her colleagues, she's still bullish about Internet stocks. Among the stocks she has never stopped touting: Priceline.com, now at $7. Meeker wouldn't speak with me for this article. "She's just trying to focus on her research," explained her spokeswoman. "She's trying not to be the poster child for an era."